Candlestick patterns are widely used in technical analysis (TA) to identify
potential market reversals and trend continuations.
Some commonly used
candlestick patterns and their examples are-
1) Doji: A doji has the same opening and closing price,
indicating indecision in the market. It suggests a potential reversal or a
pause in the trend.
- Long-legged Doji: Open and close prices are near the middle of the trading range.
- Dragonfly Doji: Open and close prices are at the high of the trading range.
- Example: A candlestick with a small body and a long wick on both ends, where the opening and closing prices are very close to each other.
2) Hammer: A hammer has a
small body and a long lower wick. It indicates a potential bullish reversal
after a downtrend.
- Example: A candlestick with a small body near the top of the candle and a long lower wick.
3) Shooting Star: A shooting
star has a small body and a long upper wick. It suggests a potential bearish
reversal after an uptrend if happen.
- Example: A candlestick with a small body near the bottom of the candle and a long upper shadows or wick.
4) Engulfing Pattern: An
engulfing pattern occurs when a larger present candlestick completely engulfs the
previous smaller candlestick whenever its bearish or bullish candle. It signifies a potential trend reversal and the trends are-
- Bullish Engulfing: A small bearish candle is followed by a larger bullish candle.
- Bearish Engulfing: A small bullish candle is followed by a larger bearish candle.
- Example: A bearish engulfing pattern is formed when a large red candlestick completely engulfs the previous smaller green candlestick.
5) Morning Star: A morning
star pattern appears during a downtrend and consists of three candlesticks. It
indicates a potential bullish reversal.
- Example: The first candle is a large bearish candle, followed by a small bullish or bearish candle, and finally, a large bullish candle that engulfs the first candle.
6) Evening Star: An evening
star pattern appears during an uptrend and also consists of three candlesticks.
It suggests a potential bearish reversal.
- Example: The first candle is a large bullish candle followed by a small bullish or bearish candle and finally, a large bearish candle that engulfs the first large candle.
7) Hanging Man: A Hanging
Man has a small body near the top of the trading range and a long lower wick or shadow.
It indicates a potential bearish reversal.
8) Piercing Pattern: A
Piercing Pattern occurs when a small bullish candle is followed by a larger
bearish candle that opens below the previous day's low but closes above its
midpoint. It suggests a potential bullish reversal.
These are major candlestick patterns commonly used by analysts but there are many more patterns that analysts use to analyze price action and make trading decisions. And it is important to combine candlestick patterns with other technical indicators and analysis methods for better accuracy.
